I am the president and CEO of the Consumer Electronics Association (CEA)® the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times best-selling books, Ninja Innovation: The Ten Killer Strategies of the World's Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream. Views are my own. Connect with me on Twitter: @GaryShapiro.

2/23/2011 @ 12:55PM7,036 views

Innovation, Failure and Corporate Culture

Innovation is a key corporate and national strategy. Everyone talks about innovation – but how many companies have a culture and structure encouraging innovation?

As I discuss in my new book, The Comeback: How Innovation Will Restore the American Dream, great innovation drives the most successful companies, from old-line companies that innovate their turnaround, such as Ford, to new generation companies that innovate to lead entirely new categories, such as Google.

Innovation requires a willingness to take risks. Innovation is never a safe bet. Risks imply that some strategies don’t work, and that some product launches, acquisitions, or ideas fail.

The recent economic downturn made companies go into survival mode. Many trimmed expenses. Other companies went through the same exercise but invested in R&D, knowing there would be a big opportunity once the economy recovered. As CEO of the Consumer Electronics Association, which owns and produces the International CES, the world’s largest technology trade show, I saw this first hand. At the 2010 CES, we set a record for the most new exhibiting companies. At the 2011 CES, we set a record for the most new product announcements. Companies that made the risky investment in 2010 saw the reward of successful product launches a year later.

Some leaders believe not taking risks, not innovating, is a reasonable strategy. Cutting costs, being conservative and surviving while your competitors make high-risk moves is an alternative to an innovation approach, although not one I would usually counsel. You may think you know your competition and believe they are making mistakes, but your competition of tomorrow may not yet exist today.

Broadcasters ignored cable, cable ignored satellite, and satellite ignored wireless broadband. Microsoft was so busy fighting government monopolization claims it ignored the Internet and Google came along. Google did not create Facebook, Twitter or Groupon. The cycle will repeat. If your company stays still, new competitors will surpass you.

The larger and more successful the company, the more challenging it is to innovate. Not only because of bureaucracy, but also because of a perceived fear of failure. A large company will occasionally have leaders who understand the ephemeral nature of market domination. Intel’s “only the paranoid survive” Andy Grove and Apple’s Steve Jobs are leaders who were relentless in their striving beyond rather than simply preserving their number-one status.

So how do leaders champion innovation? Some create separate “skunk works” to challenge the status quo. Others challenge the whole company. Nokia’s new CEO just tried this with a missive to all employees analogizing the company to a man on a burning platform in the middle of a cold sea, urging them to take the plunge into cold water.

But innovation cannot be suddenly forced on a company. As the recession started, I challenged the companies in my industry to “innovate or die.” Some died, but many more innovated and the products shown at the recent International CES gave our 140,000+ attendees a mega dose of innovation and economic optimism.

I believe innovation is our destiny and must be part of a corporate culture.

The leaders I see encourage innovation from the top. They not only reward successful innovation, but also they encourage, rather than punish, those who have tried to innovate. In fact, the failure is the learning moment – not just for those that tried – but also for others to learn what went wrong. It is a chance to examine what assumption or process or market reaction did not go as expected. Moreover, savvy leaders know that everyone in the company watches carefully how the leaders respond to a failed risk. Is it a career killer or a learning experience? Not to say failures should be rewarded – but new strategies have risks, and they don’t always work.

In the 150-person company I head, we try to instill a culture of innovation. Mistakes are only punished if they are hidden. Processes and assumptions are re-examined after each failure. New ideas are encouraged. Our top status as an association and a show producer requires fresh approaches and risk all the time. Many of our expansion ideas fail, but enough have succeeded to keep us vibrant, fresh and growing.

We have our corporate and individual weaknesses. I certainly don’t take enough time to celebrate our successes and thank all those who make them possible. I am too eager for the next opportunity. But belaboring failed strategies is not one that consumes me as I have had enough big and hugely visible mistakes. I learned the world does not dwell on your mistakes (unless you sing the National Anthem at the Super Bowl).

The most meaningful support I received early on as a CEO was from the dominant board member who told me I was doing great, but I would fail at some things and he would be there for me when I did. This gave me the confidence to try new things. The culture on CEA’s board continues with that approach, so innovation flows from our board to me and to our employees.

If you want an innovation culture you have to ask how you deal with those who take risks and fail. How many failures can an executive have before he is benched?

Think back to the recent Super Bowl. Green Bay receiver Jordy Nelson kept flubbing near-perfect passes. After the third dropped pass, QB Aaron Rodgers didn’t shake his head, visibly complain or even hesitate. The very next play he went to Nelson again, and Nelson delivered – he caught the ball, setting up the critical Green Bay touchdown.

America is defined by our culture of innovation and creativity. We think we can do it better. Our forefathers came here for a better life and instilled in our culture a “question the status quo” mentality. It has been helped by the First Amendment which protects us against a government suppressing new ideas. President Obama themed his 2011 State of the Union speech around innovation and explicitly noted that our kids don’t learn by rote – they learn to question. Indeed, my career, and I imagine the same is true for many others who lead, has been defined by asking why we can’t do it differently, do it better.

So leaders must challenge themselves and their company to think outside the box. And they must do this by example. Ford’s board of directors upset the auto community but set the tone when it hired outsider Alan Mulally. He refused bailout money and shifted the company to a technology focus. Netflix stole the market from Blockbuster by shifting the paradigm to video by mail and then innovated again by creating competition to its own model through electronic distribution. Amazon’s Jeff Bezos innovated in distribution but then created the Kindle, and now Amazon sells more electronic books than physical books.

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